Previously, employers could set whatever limit they wanted on employee contributions to Flexible Spending Accounts (FSAs) for health care. But starting this year, the maximum limit is $2,500.
If you’re concerned about a lower limit and aren’t contributing to a Health Savings Account (HSA), look into whether you’re eligible — you must be covered by a qualified high-deductible health plan. As with FSA withdrawals, HSA withdrawals for qualified medical expenses are tax-free. But the HSA contribution limits are higher: $3,250 for self-only coverage and $6,450 for family coverage, plus an additional $1,000 for taxpayers age 55 or older.
HSAs also may be more beneficial because they can bear interest or be invested and can grow tax-deferred similar to an IRA. Additionally, you can carry over a balance from year to year. If you have an HSA, however, your FSA is limited to funding certain “permitted” expenses.
An HSA also can provide a way to do some post-Dec. 31 tax planning: You have until the April filing deadline to make your contribution. Please contact us to learn whether you could benefit from an HSA.
[authorblurb name=”Mary Yaconiello” image=”5364″ url=”/about/leadership-team/mary-t-yaconiello/” text=”is a Senior Tax Manager at BeachFleischman. Working in public accounting since 1988, she has extensive experience providing tax planning and compliance services.”]